Tax Relief Opportunities for Owners of Contaminated Property

New Jersey courts have long recognized the negative impact environmental contamination has on the fair-market value of property.  See, e.g., Metuchen I, LLC v. Borough of Metuchen, 21 N.J. Tax 283, 294 (Tax 2004) (“uncontaminated land is worth more than contaminated land.”).  However, too often, tax assessments fail to reflect this.  In these cases, the owners of contaminated property may be successful in appealing their tax assessments.

In Inmar Associates, Inc. v. Borough of Carlstadt, 112 N.J. 593 (1988), the New Jersey Supreme Court set forth the general principle that environmental contamination must be considered when determining the true value of a property for tax purposes.  To obtain a tax adjustment for the environmental condition of a property, a taxpayer has the burden of proving environmental damage and a true valuation different from the tax assessment with sufficient evidence.  See Inmar, 112 N.J. at 606-610.  True valuation is normally based on fair market value (with exceptions for properties that have “distinct value” to their owners because, as noted below, they are still “in use”).

Although remediation expenses are evidence of the negative impact of environmental contamination on the true value of a property, the way to determine true value is “not simply to deduct the cost of cleanup from a putative value of the property.” See Inmar, 112 N.J. at 605.  Instead, New Jersey courts rely on the expertise of appraisal professionals in determining the appropriate adjustment methodology for environmental contamination, recognizing that standard appraisal techniques may need to incorporate non-classical, flexible approaches.  See, e.g., Inmar, 112 N.J. at 597-598 606-610.  See also Pan Chem. Corp. v. Hawthorne Borough, 404 N.J. Super. 401, 407 (App. Div. 2009), certif. denied, 198 N.J. 473 (2009).  Thus, courts have allocated the total estimated remediation expenses over the anticipated length of the remediation and reduced the property value by the average remediation expenses for each taxable year.  See Metuchen I, 21 N.J. Tax at 295-297.  See also Route 21 Assocs. v. Belleville Twp., 2013 WL 936240 (Tax 2013).  A contract sales price has also been approved as an acceptable measure of the true market value of a property when the sale is between sophisticated parties with full disclosure and knowledge of the contamination.  See Orient Way Corp. v. Twp. of Lyndhurst, 27 N.J. Tax 361 (Tax 2013), aff’d, 28 N.J. Tax 272 (App. Div. 2014), certif. denied, 220 N.J. 574 (2015).  Furthermore, when environmental restrictions effectively render a property “an ongoing financial liability” a court may find that it has only nominal value.  See Methode Elecs., Inc. v. Twp. of Willingboro, 28 N.J. Tax 289 (Tax 2015) (Court found that the property at issue had only a nominal value of $2,000 because it could not presently or in the reasonably foreseeable future be developed due to remedial actions required to prevent the off-gassing of toxic vapors.).

In the case of already remediated property, New Jersey courts recognize that an environmental stigma can continue to affect value, even if only a portion of it had been contaminated.  See, e.g., Metuchen I, 21 N.J. Tax at 287-291.  See also In re Custom Distrib. Servs., Inc., 216 B.R. 136 (Bankr. D.N.J. 1997), aff’d in part, rev’d in part on other grounds, 224 F.3d 235 (3d Cir. 2000);  Ciba Specialty Chems. Corp. v. Twp. of Dover, 2013 WL 6438501 (N.J. Tax Dec. 5, 2013) (slip op. at *5).  There is also a possibility that stigma damages may affect neighboring properties impacted by environmental contamination emanating from another site.  In any case, the justification of stigma damage is likely to require substantial expert evidence.

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